In December, NextEra Energy, a utility holding company based in Juno Beach, FL, agreed to buy all three of Hawaii’s electric utilities for about $6 billion.

The return (or lack thereof) on this $6 billion investment will likely depend on future deployment trends of distributed generation in Hawaii.

NextEra Energy Hawaii, a subsidiary of NextEra’s holding company, wants to build big-ticket, capital-intensive transmission and distribution infrastructure projects in Hawaii. The first project – but probably not the last – in the works is a $600 million undersea cable interconnecting the power grids on the islands of Oahu and Maui.

Currently, Hawaii has three stand-alone power grids: one grid serves the Big Island, another grid serves Maui and a third grid serves Oahu. Three electric utility companies, which are all owned by Hawaiian Electric Industries and are known collectively as HECO, operate these stand-alone grids.

The island of Oahu accounts for most of the state’s electricity consumption. However, most of Hawaii's renewable energy resources are concentrated on islands other than Oahu. Low-cost electricity generated from renewable energy resources on Maui or the Big Island would need to be delivered to Oahu by undersea cable systems that interconnect the island systems on Oahu and the other islands.

The interconnection proposed by NextEra would be able to move as much as 200 megawatts of electricity from Maui to Oahu at any given time.

Here’s the rub. The only way to pay for that undersea cable is to use it. The project becomes far more cost effective as the amount of energy it transmits increases. In other words, the interconnection only pencils for investors (and customers) if it moves a whole lot of electricity for years and years.

Rooftop solar reduces demand for grid power. When customers install rooftop solar panels, they purchase fewer electrons from the power grid. The capital cost of building an undersea transmission line between Oahu and Maui would have to be recovered from a lower volume of sales.

Consider a simplified hypothetical. Imagine the cable cost $1 to build. If the cable transmitted 10 electrons from Maui to Oahu annually, the $1 capital investment could be recovered in the first year of operation by collecting a toll of $0.1 from each electron transmitted. If the cable transmitted 100 electrons, the toll would be $0.01 for every electron. If it moved 1,000 electrons, the toll would be $0.001 for every electron.

Every dollar customers spend on rooftop solar panels is a dollar they don’t spend buying power from the centralized grid. More than 10% of utility customers in Hawaii have already installed rooftop solar systems, a penetration level that is an order of magnitude higher than the national average of about 0.5%.

In hindsight, the effort HECO initiated last week to roll back the rates paid to customers who install rooftop solar panels seems predictable. On Friday, HECO submitted a proposal with the Hawaii Public Utilities Commission to terminate net-metering rates for customers with rooftop solar. The proposal, which will take effect in April if approved, would hugely diminish the economic benefits of installing rooftop solar.

The utility claims that the new rate is necessary to prevent cost-shifting from customers with rooftop solar to customers without rooftop solar.

HECO’s about-face on net metering is almost certainly linked with the pending merger agreement. Under the terms of that agreement, NextEra has significant influence on what HECO’s regulatory agenda. Indeed, the agreement states that HECO must receive written consent from NextEra prior to settling “any rate case or other material proceeding that would impact the ratemaking mechanisms currently in effect.”